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Why No Money Down Mortgages Can Work.

The other week I had the great plesure of meeting Mark Weisleder.  Mark is an awesome guy and has a great deal to say about the real estate market. 

I have to agree with Mark's column about how the no money down mortgage can still work in Canada.  Here is the artical below.  have a read and post your comments below.

Last week’s column about buying a house with no money down hit a nerve.
Many readers were angry that I would suggest such a thing because it was
this sort of loose lending that led to the U.S. housing collapse.

I said that if you have a good credit rating and stable employment, but do not have enough money for the down payment on a home, there are some lenders that will include the down payment in the amount they lend. Depending on the lender, this payment can be $20,000 or more

You will have to agree to take the bank’s rate for a five-year closed mortgage, thus you will probably be paying 3 per cent more on a monthly basis than you would if you were using a variable rate mortgage, which is popular today among most home buyers. While this extra interest will amount to more than $20,000 over a five year period, it will be offset by the fact that you get to close your purchase now.

In the U.S., during the housing boom, there were free government subsidies for buyers to use for a down payment on a home, combined with much looser lending restrictions, which resulted in buyers who had poor credit being approved for mortgages that they could not afford. These buyers were later called “NINJA” (No Income, No Job or Assets) buyers because they had no credit at all and yet were approved for loans. This was a major reason for the U.S. housing collapse. When the market turned, people could not sell their homes and could not make the mortgage payments.

This is why those who criticize these Canadian no down payment mortgages are wrong. Many consumers have excellent credit and stable employment. It is for these people that the lenders will pay up to 5 per cent of the total loan amount as a payment to the buyer on closing to use for their down payment.

This is not a government grant.It is money paid by the lender because they are satisfied that this borrower has the ability to make all of the monthly payments for the entire five-year term of the mortgage. These buyers who qualify for a no down payment mortgage will still have to demonstrate that they can afford to carry the mortgage payment and all other household expenses before being approved.

The main criteria for any buyer should be, “Can you afford the mortgage payment and all of your household expenses in a responsible manner.” If you can,
then you should be able to buy a home, regardless what down payment you can afford. In addition, as a result of current historically low interest rates,
even if you buy a home with no money down, you will still pay off thousands in principal in your first year of ownership, just by making the monthly
payments. You are thus building equity in your property instead of paying rent, where you build no equity.

There is no evidence that the U.S. housing collapse will come to Canada. Even after the current U.S. collapse in prices, it is estimated that still 20 per cent
of American properties are “under water”, where the owners owe more in mortgages than their properties are worth. There are still millions of U.S.
homeowners facing foreclosure proceedings. In Canada, as a result of more prudent lending practices, less than 1 per cent of Canadian homeowners face
these same issues.

Some consumers are able to use their RRSP funds as a down payment for their first home. This can amount to a $25,000 interest free loan that you can
borrow from your RRSP to assist you with any down payment. You have to pay it back to your RRSP plan over 15 years but it is still interest free.

This is not a government grant, but it is a government approved method to assist first time home buyers to use their RRSP money to assist them in buying
their first home. Canadians are primarily conservative, and many do have a priority not only in saving for a down payment, but also to try and pay down
the principal amount of their mortgage as soon as possible. I totally support this.

Yet in my opinion, if you can afford the mortgage payment, as well as the rest of your household expenses, it should not make a difference whether you
can pay 20 per cent, 10 per cent, 5 per cent or nothing as a down payment.

The dream of Canadian home ownership should be within reach for anyone who can truly afford it.

5 Real Estate Investing Myths You Need To Know About

There are various myths about real estate investing that never seem to die no matter how much you try to kill them!  Hopefully, the information provided below will help you avoid falling for these untruths.

Myth #1: You Can’t Make Money in Real Estate Without a Lot of Money.

It’s true that you usually (but not always) need money to get started in real estate.  However, you don’t need hundreds upon thousands of dollars to get your investment career started and moving!

One of the great benefits of real estate is “leverage”, that is, you can use very little money to buy your way into properties that will keep on appreciating over time and increasing your wealth. In effect, you have what the military calls a “force multiplier”, that is, with one effective “weapon” you can eventually conquer your piece of the real estate market.

If you are short on cash and want to invest right away then partnering up with another real estate investor may be an option to consider.  Having a “cash partner” to invest with you in your deal is a quick short cut when your only hurdle is the initial down-payment.

As you can see, having a lot of money is not necessary. However, it does help because it accelerates your wealth building plan. The wonderful thing about real estate is that you can get started by building up your cash reserves, and you can then leverage those reserves into more and different investment opportunities.

Myth #2: You Need Little to No Knowledge to Become a Real Estate Investor.

Ignorance is definitely not bliss when it comes to real estate! In fact, you can get your financial head handed to you in short order if you don’t know what you’re doing. Let’s illustrate this point with a quick example from story I heard about.

An investor purchased an apartment buildings – a 40-unit complex – the investor was unaware the local gas company would reset his monthly payment plan from a regular “budget” payment to an “actual use” payment.  He was shocked when he received his first gas bill for $9,000!  Having known that one little fact would have saved him over $6000 and kept him in the black that month.

As you can see, you definitely need knowledge to get off on the right foot when buying or selling properties. It’s like a map through the “mine fields” of investment; it’ll keep you safe and in one financial piece!

Myth #3: You Should Time the Market to Have the Greatest Success.

While it’s definitely true that real estate is cyclical (like the stock market), the fact is that the cycles are much slower and longer than that of securities. So, you can’t really time real estate investments in the same way as you can with stocks and bonds. It’s a whole different mindset – a longer-term one, for the most part. Let me explain…

The real estate cycle typically works in this fashion:
High real estate demand creates a property shortage and higher rents, and appreciation along with it.
To meet demand, more properties are built.
The result – overbuilding occurs, and rents and property valuation decline.
The cycle begins again.

Note: We’ll talk about the real estate cycle at greater length later in another article.

Naturally, unexpected economic influences (war, catastrophes, etc.) can influence the cycle as well. But, remember what I said before – all real estate is local!  Even in a down market in, say, Toronto, the real estate “rose” can be on the bloom in, say, Brampton.

So, it’s not about timing in the larger sense; it’s about timing in the sense of finding and buying properties that meet your investment goals wherever and whenever they are. Or, as Gary Keller said in his great book, The Millionaire Real Estate Invester, “Timing isn’t about being in the right place at the right time. It’s about being in the right place all the time.”

Myth #4: Only Invest in Appreciating Markets

Many investors believe they should only invest in an appreciating market. This is simply not true! You can make money in any market and in any economy.

The key is to pick the right strategy for the market.  For example, if you purchased a power of sale, or a property from a distressed seller at a price far enough below the current market value, then you could buy in a declining market and be able to flip it for a quick profit or hold it for cash flow, assuming you bought it with the right terms.

Myth #5: Real Estate is a ‘Get Rich Quick’ Investment.

This is definitely not true! However, it is the best wealth accumulator. You may not hear of too many people getting rich within a one year period of time, but you will hear of many people becoming wealthy over a few short years and certainly over the long term.  Real estate is a solid “get-rich-slow” investment.

Investigative Real Estate...What the heck is that! Find out in todays (Video)

Orangeville Real Estate Video Blog #20 - March 22, 2011

I really think I have what it takes to be the next P.I in the Real Estate business...LOL Check video and be sure to vote for me by clicking the "like" button on facebook and sharing this video with all your friends. If want to voice your opinion or if you don't care for David's comments please email your feedback to [email protected] and visit http://www.watersadvanatage.com for all the David Waters Real Estate Video Blogs.

It's All About Return On Investment (VIDEO)

Orangeville Real Estate Video Blog #19 - March 16, 2011

David Waters video blogs about what are the highest return improvements and fix ups you can make to your current (or future) home. Don't start any projects until you watch the video and please share this with people you think with might help. If want to voice your opinion or if you don't care for David's comments please email your feedback to [email protected] and visit http://www.watersadvanatage.com for all the David Waters Real Estate Video Blogs.